Page 13 - Washington Nonprofit Handbook 2018 Edition

PART 1. THERE ARE MANY WAYS TO DO GOOD IN THE WORLD

CHAPTER 1. What is a Nonprofit?

Before we get started, let’s define the word nonprofit. A nonprofit is a
type of corporation that is created to accomplish a public benefit. It does not have
owners. It has no shareholders. It cannot be set up to generate an income or profit
for the organizers. Some organizations apply for tax-exempt status from the
Internal Revenue Service (IRS) so that donations can be tax-deductible to the donor,
and so that the organization will qualify for grants from private foundations and
governments and can avoid federal corporate income tax. There are different
classifications of different types of nonprofit organizations under Washington State
law (see Part 2 of this Handbook for more information) and different types of tax-
exempt organizations, one of which is for charitable organizations exempt under
section 501(c)(3) of the Internal Revenue Code of 1986, amended (also referred to
in this Handbook as “501(c)(3) organizations”).

There are important differences between a nonprofit and a for-profit
organization. The main differences are:

Owners: A nonprofit does not have any owners. Assets are held in trust for
charitable or other purposes that benefit the community.

Profits: A nonprofit does not share profits with owners or shareholders.
Any money left over at the end of the year goes back into furthering the
organization’s mission.

Volunteers: Most nonprofits have volunteers. A for-profit does not.

Control: No one person owns or controls a nonprofit. A nonprofit is
governed by a board of directors. The board of directors may hire an executive
director to implement its strategy, who may in turn manage employees and/or

volunteers. A for-profit can be owned by one person or group of people who make
all strategic decisions and have control of the company.

WASHINGTON NONPROFIT HANDBOOK -2- 2018